The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support
to international institutions.

The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes
sound financial and economic decisions through community development and education programs.

Authors Olivier Armantier, Sandra Krieger and James McAndrews provide an overview of the Term Auction Facility (TAF), a tool introduced by the Federal Reserve in December 2007 in response to increasingly strained liquidity conditions in the term funding markets.

The authors discuss the market conditions leading up to the facility’s introduction, other funding steps taken by the Federal Reserve, the central bank’s objectives in establishing the TAF, and the structure and operation of the facility. They also describe the results of the first ten TAF auctions conducted through April 2008.

The authors conclude that in times of disruption in the short-term money markets, the TAF may offer institutions greater assurance of their ability to borrow term funds, which can reduce the constraints on their allocation of credit.

Olivier Armantier is a senior economist, Sandra Krieger an executive vice president and James McAndrews a senior vice president at the Federal Reserve Bank of New York.